This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

01 August 2011

The Deal

[For a brief comment on the imminent trial of Hosni Mubarak and his sons, click here.]

Now that the deal to avert national default is nearly complete, we can analyze its political consequences. They are not what they seem.

After reading Paul Krugman’s diatribe against the President, you would think the latter had sold out his principles, progressivism, and the nation. The overwhelming majority of the near-thousand comments on Krugman’s rant echo this sentiment.

That’s a good thing. The more Democrats wail and lament, the more Republicans will think they won, and the greater the chance the deal will go through. Already it has passed the House. It appears sure to pass the Senate, which is far more reasonable and was instrumental in negotiating it.

The worst thing would have been the GOP shooting the hostages, our credit and our economy. Not only would a national default have caused catastrophic economic consequences. It would also have produced cataclysmic political consequences. Like all guilty extortionists everywhere, the GOP would have increased their lying and obstructionism tenfold, in a futile attempt to disclaim guilt.

If you think the Tea Mob are crazy now, just think what they would be like if they had killed the hostages. They would have nothing further to lose. So although I would have supported the President in letting them cause a default and take the fall (see 1, 2, and 3), I’m very glad he didn’t.

The Republicans’ extortion has had an effect. The deal would not exist without it. And the public has paid so much attention to the entire process that the whole country knows who is responsible.

But the effect will be negative among all but the most extreme rabble. The first reason is economic. Serious economists are virtually unanimous that cutting government spending in the midst of a recession is a bad thing. Why? Because it reduces aggregate demand.

Government spending doesn’t just vanish into some black hole, as the GOP would have you believe. It pays the salaries of people employed by the government at the federal, state and local levels. It therefore allows them to keep their homes, send their kids to college, buy food, pay their mortgages and rent, and (if they have any money left over) buy cars, furniture, clothing, and other goods and services. In other words, the money the government spends increases aggregate demand for goods and services in the general economy, which increases GDP and boosts growth.

The good citizens of Minnesota recently got an experiential lesson in what happens when government stops spending. They didn’t like it at all. And they are all aware now that the GOP brought them that experiential lesson.

Despite this basic economic principle, the debt deal’s effect won’t be anywhere near as catastrophic as a default would have been. The reason is timing. As Nate Silver explained in the New York Times—the best analysis I have read on the subject—the deal’s spending cuts are all weighted in the out years. For 2011 and 2012, they are nominal, if not ludicrous, with only $22 billion in cuts in 2012.

That’s pocket change. The real cuts won’t begin until 2013 or after, giving our economy time to mend, especially before the 2012 elections.

But that’s economics. The political side is much more interesting. At $2.4 trillion, the deal’s total ten-year savings is less than two-thirds of the interest on our national debt, which will be $386 billion this year alone. If all goes according to plan, the national debt will be even larger at the end of the ten years.

So did the Republicans win politically? Not a chance. They lost and don’t even know it yet. Let me count the ways.

1. After demagoguing the debt relentlessly for over a year, they had to use unprecedented political extortion to get the people, the Senate and the President to focus on it. In so doing, they distracted all from what they really care about: jobs.

2. The “deal” the GOP both forced and accepted will do almost nothing in the short term and will leave the total debt increased at the end of ten years.

3. The GOP could easily have reduced the debt substantially by raising taxes on the wealthy, or just by eliminating the most unfair and unnecessary tax loopholes and subsidies. They refused. That refusal, made at the risk of national default, showed by deeds, not words, that their overwhelming priority is preserving rich people’s privileges, not reducing debt.

4. All the effort they spent, and all the attention they got, shows that the debt is the only issue they have. They have no ideas and no plan—and they have made no effort—to give us what Americans want most: jobs. The same goes for energy independence, a rejuvenated infrastructure, better education, and scientific progress.

5. Although the GOP stood fast on their “no tax hikes” pledge, they caved on Social Security. It’s entirely off the table. That’s a good thing, because Social Security has nothing to do with the national debt. It was supposed to be self-financing. It is not so only because Congress stole from the trust-fund years ago and converted it to general revenue, breaking a solemn promise to retirees who’d already paid in for decades.

6. The GOP did get a small increase in Medicare costs, but only for higher-income beneficiaries. The deal won’t change Medicare for the people who need it most. It will only make it a bit more expensive—but still the best deal in town!—for people like me who can afford the extra expense.

7. And the best is last. If the much-vaunted bipartisan commission creates more gridlock in Congress, just as the last one did, the “automatic” cuts have to come 50% from defense.

So the GOP’s outrageous extortion got it very little. It got the debt hawks nothing, except the promise of future lackluster cuts. Anyone who can do arithmetic can tell it didn’t even begin to meet its principal ostensible objective: to make a serious dent in our national debt.

On progressives’ terms, the deal is something we can live with. On the GOP’s own terms, it’s a complete failure to anyone who can think. And it illustrates by acts, not “spin,” how little the GOP really care about the debt and deficit, and how much they care about keeping taxes on the rich low.

They care about debt now no more than they did when they massively built it up in the Reagan-Bush I era, or when Dubya annihilated Bill Clinton’s surplus and created the vast majority of today’s debt in his eight years. For them, the debt is just another point of demagoguery. Their principle objectives remain the same: (1) to support the plutocracy, lower its taxes, and increase its power and (2) toward that end, to starve and hamstring government. Watch what they do, not what they say!

To do all this nothing, the GOP was willing to risk a real economic catastrophe—national fiscal default—as well as the actual and significant loss in international prestige and confidence that their political theater caused.

The good thing is that, this time, the people were paying attention. They saw these things. They ken them dimly, but they ken.

They know there is a difference between bargaining and extortion. A bargainer may threaten to withhold a promised benefit, while an extortionist threatens extraneous and disastrous harm. When the GOP threatened to kill the hostages of America’s economy and global faith and credit, the people saw and heard. And they saw how little the extortion plot produced.

It will take time for them to put this all together. But the President, as Teacher-in-Chief, now has fourteen months to remind them.

Lest we forget, the crazy GOP House Freshmen who nearly shot the hostages, like every member that body, have to run to keep their seats every two years. When they do, they will be up against a politician who beat the Clinton dynasty and the first serious female candidate for president despite a racial handicap whose size and power we now see. With all this ammunition at his disposal, he will likely bring us a more informed, reasonable and chastened House in January 2013, and a workable Democratic majority in the Senate.

Abused Power on Trial

While we Americans were obsessing about our debt, the GOP’s extortion, and our last-minute escape from a GOP-generated crisis, the rest of the world was moving along. Egypt, the place where western civilization began, is preparing to try former dictator Hosni Mubarak and his sons for mass-murdering Egyptian people in a futile quest to retain political power.

As I have noted before, their trial will be a seminal event in human history. It follows in a straight line from the Nuremberg Trials, which held surviving Nazi leaders responsible for the mass murder of some six million of their own people in the Holocaust.

But there are two important differences. First, the Nuremberg trials were imposed by the victors in a cataclysmic war that the Nazis started, of which the Holocaust was only part. In Egypt, the people themselves, not an outside power, are seeking justice. Second, the Nazis’ slaughter dwarfed the Mubaraks’ in scale, at least a thousand-fold.

That’s why the trials in Egypt will mark a seminal event in world history. They will hold recognized leaders responsible for murdering their own people in abuse of otherwise legitimate power, and in relatively small numbers.

The last century’s horrors, the advent of nuclear weapons, and the current age of terrorism (both murderous and political) demand individual responsibility if our species is to survive. Bin Laden has met his fate. The Mubarak family will meet justice. And next year, if all goes well, our national extortionists will get their comeuppance for their own financial crimes at the ballot box. That trifecta of individual responsibility will do much to restore balance and hope to an uneasy world, which is still smarting from letting the gamblers and swindlers that caused the 2008 Crash go free.

4 Comments:

Suppose you will have seen this but thought you might enjoy this latest from Maureen Dowd http://www.nytimes.com/2011/08/03/opinion/washington-chain-saw-massacre.html, and if you like suggest you read Marie Burn's comment http://community.nytimes.com/comments/www.nytimes.com/2011/08/03/opinion/washington-chain-saw-massacre.htmlMind if I provide your link to Democrats Abroad? Still summer this side off the world but clouds are formingAll the best, JP

Thanks for your comment, and yes, please, send links to whomever you like. Linking won’t impair my anonymity, which I’m considering giving up anyway, and will spread the word.

As for Maureen Dowd and Marie Burns, I enjoy reading both. Dowd is good at ridiculing absurdity, and Burns (who I think must be a retired lawyer) at describing current conditions and advocacy.

But neither, in my view, is particularly good at finding solutions. Telling Obama to show more courage or voters not to vote for him is not a solution. Either will only make things worse.

There are many reasons why Obama is not FDR. Among the least important are his centrism and caution. Among the most important are GOP intransigence and exploitation of racism.

In FDR’s time, the Masters of the Universe had just destroyed the global economy, and many were smart and humble enough to know it. They were disorganized and confused. Today, we have a totally different circumstance: a set of economic fairy tales inculcated in the GOP and many voters by history's most effective propaganda machine. The delusions extend way beyond finance and Wall Street and are astoundingly resilient.

In the thirties, ideology and incompetence were on the run. Today they are ascendant, although they may have reached their high-water mark with the self-evident failure of the GOP’s debt-default extortion.

Even FDR couldn't be FDR today. And, yes, Obama is not only the best we've got, but the best we could realistically hope for under current conditions.

I am a very, vey busy person and I take every chance to read your blog. Your commentaries are very enlightening. You are indeed an excellent writer, concise and prolific. Thanks and I appreciate your sharing your thoughts with us. The long awaited time has arrived to reveal your identity and I can't wait. Keep up the good work and will be looking forward to reading more posts on your blog through the years and more power to you!

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About Me

This blog reflects a quarter century of study and forty years of careers in science/engineering (7 years), law practice (8 years) and law teaching (25 years). A short bio and legal publication list appear here. My pre-retirement 2010 CV appears here.
As I get older, I find myself thinking more like an engineer and less like a lawyer or law professor. Our “advocacy” professions—law, politics, public relations and advertising—train people to take a predetermined position and support it against all opposition. That’s not the best way to make things work—which is what engineers do.
What gets me up in the morning is figuring out how things work and how to make them work better, whether they be vehicles, energy systems, governments or nations.
This post explains my respect for math and why you’ll find lots of tables and a few graphs and equations on this blog. If you like that way of thinking, this blog is for you.